Moderate Selloff On Tuesday
Stocks fell modestly on Tuesday. At times in the trading session it seemed like the stay at home trade was beating the reopening trade. However, by the close everything was down. It was an across the board modest decline. S&P 500 fell 48 basis points, the Nasdaq fell 29 basis points, and the Russell 2000 fell 37 basis points.
Nasdaq 100 fell 45 basis points and small cap value fell 90 basis points. CLOU cloud index was flat and regional banks fell 1.4% after bouncing sharply higher the prior day.
Zoom Video fell 4.5% which means it’s down 6.2% in the past 2 days. That may have been company specific weakness though as Shopify rose 6.1%. Penn Gaming fell 4.8%. I think there are severe long term issues with the business as this is a highly regulated industry and Barstool is known for crossing the line.
This company is using children in its gambling ads which will eventually get it in trouble. Another big issue is intense competition as online sports gambling is a new industry where everyone is going all-in to try to gain market share. Penn claims it doesn’t need to advertise because it owns part of Barstool. However, they are giving out discounts to new users on the app, which is the same thing in my view. It still costs them money.
Every Time Stocks Bottom On The Same Day
StoneX released a new report where they mention that every single one of the last 4 stock market bottoms occurred in the last week of the quarter. As you can see from the chart below, stocks bottomed at the end of the quarter in Q1 2018, Q4 2018, and Q1 2020. They are somewhat presumptuous to say the stock market already bottomed after this correction, but it’s certainly possible. Some are still bearish on tech stocks, but don’t expect the S&P 500 to fall much further. Value stocks already fell way more than expected.
It’s statistically unlikely for stocks to always bottom at the same time in a quarter, but we know to throw out statistics when dealing with markets. Human actions don’t make sense. Humans are emotional and they herd together in the same ideas because it makes them feel good.
Timing of the bottoms might be related to the fundamentals of the money management business. Fund managers might not want to take out new longs that have been weak right before the quarter ends. Buying a stock or market that’s down right before the quarter ends is the opposite of window dressing. It makes the manager look bad.
Important Election Days
It seems like the market cares less about who will win the election and more about whether it will go smoothly. That makes sense because some think Donald Trump is the more uncertain candidate. However, that argument is not entirely valid because we already know what he will do because he has been in office for 4 years.
It could lead to unrest if the election doesn’t go smoothly. Just because America is a first world country, doesn’t mean it can’t have a bad election. Think about how badly some states handled the unemployment insurance fiasco this spring in the heart of the recession.
With that in mind, let’s look at the key dates this election season. There will be millions of mail-in ballots that complicate the situation. According to Renaissance Macro research’s Twitter poll, 61% of investors don’t think the election will be settled on election night. November 23rd is the absentee vote deadline.
December 14th is the electoral college vote. December 23rd is the certification deadline. On January 6th, Congress declares the winner. Normally, these dates don’t matter, but in a contested election they are important.
The table above shows the varying procedures for processing and counting early voting in a few of the states. Florida is probably the most important state in this election as it usually is because of its size and because polling is close.
As you can see, processing begins 22 days before election day. Counting also begins 22 days before election day. Since the election is on November 3rd, it is currently in 33 days. Ballots in Florida are received by election day at 7PM.
Do The Debates Matter?
Debates are funny because we don’t know who will win and we don’t even know if they will affect voting. They will affect voting less than usual because some people will have already voted via mail before the debates. The table below shows the winner of the debates doesn’t always win the election.
COVID-19 Could Be An Issue This Fall
Daily positive rate for COVID-19 testing reached 3.25% on Tuesday. However, the 7 day average is still only 1.38%. The city needs the 7 day average to stay below 5% to keep schools open. Investors focus on New York because it appears to have been hurt by the virus the most. If the virus can come back there, it can come back everywhere.
As you can see from the chart above, the hospitalization rate has been ticking up slightly. That’s why it’s likely that the 7 day average of deaths doesn’t fall further. It seems like it’s stuck in the mid-700s. Tuesday was a bad day for testing as there were only 812,773 tests.
Good news is the 7 day average rose further. It’s at 934,664 which is a record high. We can expect it to get to 1.5 million by the end of October. This logic on not expecting the virus to get worse in the winter is that we’ve seen areas get hit and recover regardless of the season. It seems like how much people gather together matters much more than the temperature outside.
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